News Type: Future Focus Blog Posts

Part I was posted last week and can be read here: https://www.casstudentcentral.org/a-haunting-actuarial-analysis-part-i/

Are you back?  Good.  Here is a summary of the aggregate survey results, including comments often originating from some of my wonderful CAS Staff colleagues, from most risky to least risky monsters.

(1) Dracula / Vampires 

Based on average survey ranking, the most risky Halloween monster is Dracula / Vampires.  While no one selected Dracula as the most risky, almost all respondents ranked him (it?) second!  Concerns about Dracula, from a risk management perspective, centered primarily around severity:  if it bites you, that’s pretty much all she wrote, and you join the can’t-get-enough-of-that-O-positive club.  Interestingly, the fact that Dracula is only active at night was used by respondents on both sides of the frequency issue, as an indication that the risk might be both lower and higher:  active “only at night” versus “every night.”  One person suggested that, from the standpoint of exposures, there’s only one Dracula – but don’t the bitten then also become vampires?  Also, it was pointed out that the original Bram Stoker version could shapeshift, and was master of those he “recruited,” and thus had the potential to be a particularly grueling risk.  These last few comments demonstrate the importance of correctly ascertaining and defining the essential characteristics of your risk, in order to properly quantify and assess the underlying exposure, as well as the frequency and severity potential.

(2) Zombies 

Here I must embarrassedly provide a caveat.  When I first sent this survey to my colleagues, I had included only the first seven monsters – I had somehow forgotten zombies!  Several recipients of the survey pointed out this dreadful lacuna (which I contend was caused by the insidiousness of zombies themselves, and their effect on my brain!), but by then it was too late to add zombies to the survey.  Nevertheless, a few respondents themselves chose to add zombies to their rankings and, although the sample size is much smaller than for the other classes, zombies did achieve the second-highest risk ranking, very close behind Dracula / Vampires.

Risk characteristics of zombies (at least for fast-moving ones) include their swarm mentality, the difficulty in “killing” them, and their relentlessness.

(3) The Wolfman 

This one surprised me a bit – clearly, I’m no horror expert.  I thought that, for this dude, exposure would be low because he’s only a problem on nights with a full moon.  But others felt that frequency per unit of exposure (on those infrequent nights, he has an insatiable appetite) and severity (if you happen to be in the same room with this guy, you’re probably dead) would be significant, even if the exposure itself is only about once per month.

(4) Witches / Wizards

Coming in fourth on our list of greatest risk-hits are witches and wizards.  A problem with them is quantifying the exposure level:  you never quite know who is and isn’t a witch (who would have suspected Selena Gomez?!).  And, like most of the high-risk-ranking monsters, the potential severity is enormous – one thought, or nose-wiggle, or finger-snap could take out the whole town.  On the good side, with respect to frequency of damage, unless they’re provoked, they’re generally not harmful.  So “just leave them alone” would be sound risk management advice!

(5) The Mummy

There was some disagreement among respondents regarding The Mummy, and so here’s another example of the need to precisely identify, characterize, and define your risks.  Some felt he should be low on the list (perhaps you can simply outrun him).  Others were concerned that he’s the one on the list that truly seems to want to kill everyone, and that he himself can be hard to kill, requiring magic or an ancient Egyptian curse.  (So I guess we can’t just nuke him?)

(6) The Grim Reaper            

Now this is a really interesting one, and it has a very important lesson for actuaries and risk analysts.  The responses and rankings on The Grim Reaper had by far the highest standard deviation of any of the eight monster types – i.e., there was more disagreement in the rankings.  In fact, roughly the same number of people ranked TGR most risky, as ranked it least risky.  I think what has happened here is a common issue:  causality versus correlation.  Let’s face it:  if TGR shows up, you’re pretty much toast.  But is TGR the cause of death, or just the messenger (and thus the link between TGR is one of correlation, rather than cause)?  My interpretation (and again, we need to define and characterize our risks accurately!) is that death is caused by other factors, and TGR just shows up at the appropriate time.  In that sense, TGR would not be risky per se – but would be a rather reliable indicator that death is imminent.

(7) Ghosts                  

Ghosts were generally low-rated, on the basis that they may be unable to do physical damage (although see Ghostbusters – “I think he can hear you, Ray”), and they tend to stick to their own stomping grounds.  But there’s certainly potential for emotional distress and mental damage.  Plus, again, how do we know the extent of the exposure?

(8) Frankenstein’s Monster 

Widely agreed to be at or toward the bottom of the risk list, Frankenstein’s Monster was interpreted by survey responders as a largely misunderstood and potentially friendly bloke (unless you cross him).  Not the brightest bulb on the tree, he can be both outrun and out-thought.  (But what’s up with that haircut??)

Many thanks to my friends and colleagues on the CAS Staff that responded to the survey!  Also, if you are interested in reading more on monster risk-rankings (as well as much other interesting and useful postings and information), please see the MyPath Blog, proprietors of which I thank for the initial idea that led to this Student Central post.

Happy Halloween!

Careers rarely unfold the way you had originally anticipated.  Take the following hypothetical:

After graduating from college, you begin a position as Actuarial Analyst for a major property-casualty insurance company.  You work for a few years, passing actuarial exams regularly, achieving an ACAS designation (with the FCAS right around the corner!), and getting very positive performance reviews. 

One day, the Chief Actuary calls you into her office and says, “We love the work you’ve been doing, and we think you’re ready for a new challenge.  I’m appointing you the sole actuary of a brand new business unit, Halloween Monster Liability.  Apparently, many monsters have significant assets to protect, so there is an emerging market for monster liability policies.” 

You smile knowingly, and cheerfully say “Good one!”  But the Chief Actuary just frowns and gives you a quizzical look. You realize your mistake, and stammer, “Oh, uh…  you’re serious!”

She nods.  “Darn right I’m serious!  This idea came right out of our new Innovation Lab, and it’s one of the top priorities of our CEO.  We’re going after this market in a big way – we’re all in!  And you’ll be the key: determining appropriate prices and risk relationships for the eight types of monsters we’ll be insuring, so this new venture will be profitable.” 

She hands you a sheet of paper with the list of the eight monster classes.  “There’s no good formal historical loss database available, of course – but plenty of anecdotal information and evidence.  I’d suggest you start by ranking the riskiness of each monster class relative to the others.”  She stands up and shakes your hand.  “This is a great opportunity for both you and the company.  Don’t let us down!”

Your head spinning, you leave and eventually find your way back to your office and plop down in your chair.  You look at the sheet of paper listing the eight categories of monsters for which you must now begin the process of risk classification for ratemaking purposes: 

• Dracula / Vampires                           
• Frankenstein’s Monster                   
• Ghosts                                            
• The Grim Reaper                             
• The Mummy                                     
• The Wolfman                                    
• Witches / Wizards                              
• Zombies                                             

 First, as the Chief Actuary suggested, you decide to try to rank these according to relative riskiness.  You pull out a pad of paper, and start jotting down ideas, starting with general context. 

You know the following:

• The “risk” of each monster could manifest itself in numerous ways: injury or death to persons, emotional trauma, property damage – and then, of course, emerging from these could be business interruption, lost wages, etc.
• Insurance premiums must be sufficient to cover expected total loss (plus a risk load), and for each policy, total loss will be a function of frequency, severity, and the level of exposure.
• Each of these types of monsters has specific characteristics that should help you to evaluate the relative risk potential, in terms of frequency, severity, and exposure.

 “Whew,” you mumble to yourself.  “I’m gonna need some help with this.”  You decide to survey your colleagues for their impressions of the relative riskiness of the eight monster classes.

And indeed, that’s what I have done: surveyed my colleagues on the CAS Office Staff.  But before I present the overall results, you might want to take a few minutes to think about your own monster riskiness ranking.  Go ahead – I’ll wait.

Part II will be coming out on Halloween so stay tuned!

You’re a university student, walking down a sidewalk in your neighborhood, your eyes fixed intently on your smartphone screen.  You move your phone slowly from side to side, surveying the landscape.  “If there’s anything here, I’ll find it,” you think to yourself.

Suddenly, you see something, just ahead and to the left, on the periphery of your screen sensor.  You instinctively shift your direction slightly, and slowly close in on the object.  You switch to virtual camera mode — and there it is, standing over six-feet tall:  a bi-pedal feline.  Right in front of the window of a well-landscaped brick ranch home, just standing there like he owns the place.  Not believing your luck, you blink and then refocus.  Your eyes were not deceiving you.  It is indeed one of the rarest (and strongest) of the Pokémon:  Mewtwo.  You simply must have it!  But before you attempt the capture, you’d like to get much closer…

There are, however, some potential problems.  The home’s yard is fenced in.  On the fence gate is a large sign:  “No Trespassing.  Beware of Dangerous Dog.”  And the Mewtwo appears to be standing in a nicely-manicured flower bed.

Yeah, like any of that is going to keep you from your quarry!

You throw open the unlocked gate and step into the yard, breaking your ankle on a loose cobblestone.  Undaunted, you limp purposefully toward the Mewtwo, trampling several expensive flowers and small ornamental shrubs.  You fling your Pokéball, and score a direct hit – the Mewtwo is yours!  In your ecstasy, you raise your arms in triumph, accidentally letting go of your phone, which flies into and shatters a window on the home.

This awakens the “Dangerous Dog,” a pit bull named Stormy, who jumps out the window at you, trying to defend her turf.  You stagger through the open fence gate and escape out into the street, causing the driver of a passing car to swerve and hit a tree, damaging his car and breaking his wrist. The dog has followed you out the gate and, distracted by all the commotion, locates an easier target, and bites a nearby pedestrian on the sidewalk.

So…

Embedded in this hypothetical scenario are lots of risk and insurance issues.  Let’s start a Student Central dialogue – please respond by commenting and sharing your thoughts on what kinds of insurance policies might cover which damages and injuries.

In a week or two, I’ll come back with a second post, summarizing my own view of some of the scenario’s risk and insurance implications – and perhaps highlighting some of your more perceptive comments!